Markus Brunnermeier and Harold James Discuss the Eurozone Crisis and the "Rhine Divide"
In advance of their forthcoming book "The Euro Crisis as a Battle of Ideas," JRCPPF faculty affiliates Markus Brunnermeier and Harold James discussed several key cultural and economic philosophy differences that impede resolution of the Eurozone Crisis, at a lecture that the two gave to Woodrow Wilson School students last month. Most notable among the ideas presented was their dichotomy between the positions of France and Germany (what they call the “Rhine Divide”) when it comes to appropriate policy measures.
They focused on several aspects of this “Rhine Divide,” and explained their deep historical roots. Among the differences discussed were:
- that the French tend to prefer discretion, reflecting the flexibility and agility that is possible in a centralized state, where the Germans tend to strictly follow rules, stemming from their tradition of federalism;
- that the French prefer solidarity and unity, which often clashes with German preference for liability and a hesitance to “bail out” neighboring countries;
- that the Germans view financial shocks as solvency problems whereas the French see them as liquidity problems;
- and that Germans are typically wary of the Keynesian stimulus measures popular in France, as well as England and the U.S., and advocate for austerity as the path to resolution.
The ultimate question is: Are these core, contrasting philosophies completely inflexible, or (as Brunnermeier and James discussed during the lecture) does history indicate that they may actually be, in some ways, fickle? Is there room for movement and compromise, to develop policies that will help the entirety of the Eurozone?
Brunnermeier and James responded with but a foretaste of what will come with their new book on the Eurozone crisis (written with co-author Jeanne-Pierre Landau, not present at the lecture)--that new insurance models and the creation of Euro Safe Bonds (ESBies) may be required to bridge the philosophical divide of Europe’s Rhine River.